When it comes to cryptocurrencies, an exchange plays a crucial role, allowing users to transact seamlessly. They have played an essential role in the growth and development of the global crypto markets. There are two predominant types of cryptocurrency exchanges: centralized and decentralized. In this article, we will take a quick look at centralized exchanges, understand what they are, and how they work.
What Is A Cryptocurrency Exchange
Simply put, a cryptocurrency exchange is a platform that allows users to buy and sell crypto. An exchange can be something other than an online platform, with physical crypto exchanges also in existence, although these are extremely rare compared to their online counterparts. The exchange offers users a host of trading pairs. Some of the more popular trading pairs are BTC/USD, BTC/EUR, and ETH/USD.
An exchange can also offer users spot trading or futures. Spot trading refers to the purchase of cryptocurrencies, while futures allow you to speculate on the price movement of a particular asset.
What Is A Centralized Exchange?
A centralized cryptocurrency exchange (CEX) is a platform that allows users to trade in crypto, acting as an intermediary between buyers and sellers by matching orders in a centralized order book. These exchanges use a business model similar to traditional online brokerages, simplifying the process of trading cryptocurrencies. This is what makes them extremely popular among new crypto investors since they offer the same ease of use of platforms used by equity and forex traders.
A centralized exchange is a marketplace that allows a large number of users to simultaneously buy or sell a particular type of asset. Regarding traditional markets, prominent exchanges include the New York Stock Exchange (NYSE) and the London Metal Exchange. When it comes to the crypto space, major centralized exchanges include the likes of Gate.
How Do Centralized Exchanges Work?
Typically, a centralized exchange directly participates in the market by clearing trades. They also maintain digital order books that process buy and sell orders posted by traders. These orders are simply requests by traders to purchase or sell an asset. The exchange aggregates these orders, matching the corresponding buy and sell orders, and announces current market prices based on the last price the asset has listed for.
In order to trade on a centralized exchange, users are required to disclose certain personal information to verify their identity and comply with all mandatory KYC (Know Your Customer) and AML (Anti Money Laundering) regulations. The details required for registration vary depending on regulatory compliance laws that can vary in different jurisdictions. Once users have registered and set up their account on the exchange, the next step is to fund the account. Accounts can be funded by depositing cryptocurrency or fiat into the linked wallet. Some exchanges also allow users to link their credit cards and purchase cryptocurrencies.
Once the account is funded, users can purchase the crypto of their choice by simply placing an order. Centralized exchanges offer users a host of order types, such as a market order, limit order, and a stop-loss order. Once the order is fulfilled, the user receives the cryptocurrency. Users can either store their cryptocurrency on the exchange wallet or move it to a wallet they control.
Wrapping Up
Centralized exchanges are far more popular than their decentralized counterparts, with the platforms accounting for 95% of cryptocurrency trading, according to data sourced from KPMG. While there are several prominent exchanges for users to consider, one of the best platforms to get started with is Gate. The exchange offers an easy-to-use interface, allowing users to trade over 1,500 cryptocurrencies quickly, securely, and efficiently.
